Dubai's sukuk jump most in five weeks on Greek debt aid

Dubai’s Islamic bonds jumped the most in more than a month last week after Greece’s agreement on austerity measures eased contagion concerns in Europe, prompting investors to seek higher-yielding assets.

The rate on the sheikhdom’s 6.396 percent sukuk maturing November 2014 dropped 16 basis points last week, the most since the five days ending June 3, to 4.68 percent on July 8, Bloomberg prices show. Dubai’s unrated debt rose after the International Monetary Fund approved a 3.2 billion euro ($4.56bn) joint loan with the European Union on July 8, and European finance ministers agreed to extend 8.7 billion euros to Greece earlier this month.

“Dubai is one of the most liquid names in the region, so it’s susceptible to global market moves,” Adnan Haider, head of fixed-income and equities at Abu Dhabi Commercial Bank, said in a July 10 interview. “The austerity measures the Greek parliament passed, and the loans it got last week, abated fears that the Greek government was going to default on its debt.”

Yields on European debt declined last week on relief that Greece’s debt woes won’t stall global economic growth, which has yet to recover from the worst financial crisis since the Great Depression. In Dubai, whose government now directly owns property developer Nakheel PJSC following a $13bn debt deal last week, the non-rated sukuk continues to yield more than 58 basis points above the region’s average.

The yield on Dubai’s debt dropped to pre-Greece crisis levels last week after it soared to 5.1 percent on June 27, the highest in two months, on concern the European country will default on its debt. The difference between the debt and Malaysia’s 3.928 percent sukuk maturing June 2015 narrowed three basis points last week to 207.

Falling yields in US Treasury notes and a shortage of sukuk in the market, with issuance declining 5 percent in 2011 to $2.3bn compared with the year-earlier period, also helped boost demand for high-yielding Islamic bonds in region, Haider said. The rate on US Treasury’s five-year note tumbled 20 basis points last week to 1.58 percent on July 8. Eurobond yields fell two basis points to 5.91 percent, according to JPMorgan Chase & Co.’s EMBI Global index.